Build America Bonds were originally created in the American Recovery and Reinvestment Act and lower borrowing costs for state and local governments by the Treasury making direct payments to those governments in an amount equal to 35 percent of the interest payment on the bonds.
The bonds have recently been modified in the so-called tax extenders bill that awaits action in the Senate.
The bill extends the bonds through 2012 and reduces the direct payment from 35 percent to 32 percent of the coupon interest. For bonds issued in 2012, the amount of direct payment would be reduced to 30 percent of the coupon interest.
The modifications are expected to cost approximately $4 billion, which could change given the fluctuation of interest rates.
President Barack Obama's FY 2011 budget request proposed making the bonds permanent with a 28 percent repayment rate and expanding how they are used.